Despite Austerity, US Job Demand Remains Strong... "Interest Rates Must Be Raised by 1%P in the First Half"

[Asia Economy New York=Special Correspondent Joselgina] Despite the US Federal Reserve's (Fed) consecutive interest rate hikes and recession concerns, a report has emerged indicating that the labor market overheating continues. With solid job demand confirmed, the Fed's tightening is expected to gain momentum in the new year. There are also claims from Fed officials that interest rates need to be raised by more than 1 percentage point in the first half of the year.

According to the November Job Openings and Labor Turnover Survey (JOLTs) released by the US Department of Labor on the 4th (local time), the number of job openings at US companies as of November last year was recorded at 10.46 million. This is a decrease compared to the previous month (10.51 million) but far exceeds market expectations (10 million).

[Image source=Reuters Yonhap News]

The ratio of job openings per unemployed person, which the Fed monitors to assess labor market overheating, remained the same as the previous month at 1.7. This means there are 1.7 vacant jobs for every unemployed person. This is much higher compared to the pre-pandemic level (1.2 times). CNBC reported, "This shows that despite the Fed's efforts to cool the economy to lower inflation, labor demand remains high." The ratio showing the number of hiring announcements among total postings was 6.4%, unchanged from the previous month.

The number of voluntary quits increased by 126,000 from the previous month, reaching 4.17 million. This marks the 18th consecutive month exceeding 4 million, the longest streak on record. It suggests that workers are confident enough to leave their current jobs and find other positions offering higher wages and better benefits. For the Fed, which has been concerned about wage increases due to labor market overheating, this is a point of deep concern. Continued high wage growth inevitably exerts upward pressure on inflation.

Bloomberg News diagnosed, "The likelihood of the Fed continuing restrictive monetary policy, including additional rate hikes, has increased for the time being." The market is currently awaiting the December ADP employment report and nonfarm payroll data, which will be released later this week.

There are also claims from Fed officials that interest rates need to be raised by 1 percentage point in the first half of the year. According to the Wall Street Journal (WSJ), Neel Kashkari, President of the Minneapolis Federal Reserve Bank, stated in an online post released that he expects interest rates to rise to around 5.4% in the first half of this year. The current US interest rate is 4.25?4.50%. He argues that a 1 percentage point increase is necessary. This figure also exceeds the Fed's dot plot forecast released last December, which projected rates of 5.00?5.25% by the end of this year. President Kashkari said, "There is evidence that inflation has peaked, but it is too early to be certain," adding, "I believe interest rates need to continue rising for at least the next few FOMC meetings."